FELE
$45.15
Franklin Electric
$1.19
2.71%
Earnings Details
3rd Quarter September 2018
Friday, October 26, 2018 8:00:00 AM
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Summary

Franklin Electric Lowers Guidance

Franklin Electric (FELE) reported 3rd Quarter September 2018 earnings of $0.64 per share on revenue of $341.9 million. The consensus earnings estimate was $0.66 per share on revenue of $340.5 million. Revenue grew 9.9% on a year-over-year basis.

The company said it expects 2018 earnings of $2.22 to $2.26 per share. The company's previous guidance was earnings of $2.27 to $2.37 per share and the current consensus earnings estimate is $2.27 per share for the year ending December 31, 2018.

Franklin Electric Co along with its subsidiaries designs, manufactures and distributes water and fuel pumping systems, composed of submersible motors, pumps, electronic controls and related parts and equipment.

Results
Reported Earnings
$0.64
Earnings Whisper
-
Consensus Estimate
$0.66
Reported Revenue
$341.9 Mil
Revenue Estimate
$340.5 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Franklin Electric Reports Record Third Quarter 2018 Sales and Earnings

FORT WAYNE, Ind., Oct. 26, 2018 (GLOBE NEWSWIRE) -- Franklin Electric Co., Inc. (NASDAQ: FELE) reported third quarter 2018 GAAP fully diluted earnings per share (EPS) of $0.63, versus a GAAP fully diluted EPS in the third quarter 2017 of $0.52.  Third quarter 2018 sales were $341.9 million, compared to 2017 third quarter sales of $311.1 million.  Third quarter 2018 organic sales increased about 8 percent when excluding the impact of foreign currency translation. Third quarter EPS before the impact of restructuring expenses was $0.64 compared to 2017 third quarter EPS before restructuring of $0.53 (see table below for a reconciliation of GAAP EPS to EPS before restructuring).

Gregg Sengstack, Franklin Electric’s Chairman and Chief Executive Officer, commented:

“Our third quarter earnings were a record for any third quarter in the Company’s history.  Our earnings per share grew by over 20 percent from the third quarter 2017.  Our consolidated organic sales growth before the impact of foreign exchange was about 8 percent, led by 49 percent organic growth in our Pioneer branded dewatering equipment products and 22 percent organic growth in our Fueling Systems business.

Our results were negatively impacted by a significant and unexpected strengthening of the U.S. dollar in the quarter against many developing world currencies which lowered our overall net sales by $11.2 million, or 4 percent and lowered our operating income by an estimated $1.6 million or about 5 percent versus the third quarter of last year.  In addition, we had below the operating income line transactional foreign exchange losses of $1.6 million in the quarter as the sudden declines in the Turkish Lira, South African Rand, and Brazilian Real versus the U.S. dollar exposed us to short term liability valuation adjustments, primarily in August.  The combined impact of foreign exchange reduced our earnings per share by about $0.05.”

Key Performance Indicators:

  For the Third Quarter
Earnings Before and After Restructuring  2018  2017 Change
(in millions)    
Net Income attributable to FE Co., Inc. Reported $   30.0  $   24.5  22%
Allocated Earnings $(0.2)$(0.2) 
Earnings for EPS Calculations $   29.8  $   24.3  23%
     
Restructuring (before tax): $0.3 $1.0  
     
Restructuring, net of tax: $0.2 $0.6  
     
Earnings before Restructuring $   30.0  $   24.9  20%
     
  For the Third Quarter
Earnings Per Share  2018  2017 Change
Before and After Restructuring     
(in millions except Earnings Per Share)    
     
Average Fully Diluted Shares Outstanding  47.2  47.0 0%
     
Fully Diluted Earnings Per Share ("EPS") Reported $   0.63  $   0.52  21%
     
Restructuring Per Share, net of tax $0.01 $0.01  
     
Fully Diluted EPS before Restructuring $   0.64  $   0.53  21%
     

 

 Net Sales
 United StatesLatinEurope, MiddleAsiaTotal    
(in millions)& CanadaAmericaEast & AfricaPacificWaterFuelingDistributionOther/ElimsConsolidated
          
Q3 2017$97.1 $32.6 $46.9 $19.4 $196.0 $64.1 $68.1 ($17.1)$311.1 
Q3 2018$105.8 $31.2 $44.0 $17.3 $198.3 $78.8 $78.0 ($13.2)$341.9 
Change$8.7 ($1.4)($2.9)($2.1)$2.3 $14.7 $9.9 $3.9 $30.8 
% Change9%-4%-6%-11%1%23%15% 10%
          
Foreign currency translation($0.6)($4.2)($5.2)($0.6)($10.6)($0.6)$0.0   
% Change-1%-13%-11%-3%-5%-1%0%  
          
Acquisitions $3.9   $3.9 $1.3 $8.2   
          
Volume/Price$9.3 ($1.1)$2.3 ($1.5)$9.0 $14.0 $1.7   
% Change10%-3%5%-8%5%22%2%  
          

 

Operating Income and Margins       
(in millions) For the Third Quarter 2018
  WaterFuelingDistributionOther/ElimsConsolidated
Operating Income / (Loss) $28.4 $20.9 $3.1 $(12.3)$40.1 
% Operating Income To Net Sales  14.3% 26.5% 4.0%  11.7%
       
Restructuring $- $- $0.3 $- $0.3 
       
Operating Income/(Loss) before Restructuring $28.4 $20.9 $3.4 $(12.3)$40.4 
% Operating Income to Net Sales Before Restructuring  14.3% 26.5% 4.4%  11.8%
       
       
Operating Income and Margins       
(in millions) For the Third Quarter 2017
  WaterFuelingDistributionOther/ElimsConsolidated
Operating Income / (Loss) $28.3 $17.1 $2.0 $(15.4)$32.0 
% Operating Income To Net Sales  14.4% 26.7% 2.9%  10.3%
       
Restructuring $1.0 $- $- $- $1.0 
       
Operating Income/(Loss) before Restructuring $29.3 $17.1 $2.0 $(15.4)$33.0 
% Operating Income to Net Sales Before Restructuring  14.9% 26.7% 2.9%  10.6%
       

Water Systems

Water Systems sales were $198.3 million in the third quarter 2018, versus the third quarter 2017 sales of $196.0 million.  Water Systems organic sales increased about 5 percent compared to the third quarter of 2017.  Water Systems sales decreased about 5 percent in the quarter due to foreign currency translation.  In the third quarter of 2018, sales from businesses acquired since the third quarter of 2017 were $3.9 million.

Water Systems sales in the U.S. and Canada increased by about 9 percent compared to the third quarter 2017. Foreign currency translation decreased sales by about 1 percent.  Sales of Pioneer branded dewatering equipment increased by over 70 percent in the third quarter when compared to the prior year due to continued strength in North American oil and gas markets and diversification of product sales channels and geographies. Sales of other surface pumping equipment increased by about 6 percent on stronger HVAC and wastewater products, versus the third quarter 2017. Sales of groundwater pumping equipment decreased by about 5 percent on lower residential and agricultural system sales, versus the third quarter 2017.

Water Systems sales in markets outside the U.S. and Canada were flat organically.  Overall, sales declined about 6 percent with foreign currency translation decreasing  sales by about 10 percent and revenue from acquired units increasing sales by about 4 percent.  International Water Systems local currency sales improved in Europe, the Middle East, and Africa, but were offset by lower sales in Asia Pacific and Brazil when compared to the third quarter 2017.  Combined, sales in Asia Pacific and Brazil declined by about 9 percent organically.  In Asia Pacific, the Company’s sales decline was nearly all related to lower sales activity in Thailand where sales continued to be adversely impacted by reductions in government funding for water related projects.  In Brazil, the Company’s sales decreased due to a continued slowdown of the economic environment. 

Water Systems operating income was $28.4 million in the third quarter 2018, flat compared to $28.3 million in the third quarter 2017.  Operating income growth in the U.S. and Canada was offset by declines in international regions, in part due to weakening foreign currencies versus the U.S. dollar.

Fueling Systems

Fueling Systems sales were $78.8 million in the third quarter 2018, a new record for any quarter. The third quarter 2017 sales were $64.1 million.  Fueling Systems organic sales were up about 22 percent compared to the third quarter of 2017.  In the third quarter of 2018, sales from businesses acquired since the third quarter of 2017 were $1.3 million

Fueling Systems sales in the U.S. and Canada increased by about 9 percent compared to the third quarter 2017.  The increase was principally in the fuel management and piping and containment systems product lines.  Outside the U.S. and Canada, Fueling Systems revenues grew by about 47 percent, led by stronger sales in China, India and Latin America.

Third quarter Fueling Systems operating income was $20.9 million and was a new record for any quarter in the segment’s history.  The third quarter 2017 Fueling Systems operating income was $17.1.  The increase in operating income was primarily related to higher sales.

Distribution

Distribution sales were $78.0 million in the third quarter 2018, versus third quarter 2017 sales of $68.1 million.  In the third quarter of 2018, sales from businesses acquired since the third quarter of 2017 were $8.2 million.  The Distribution segment organic sales increased about 2 percent compared to the third quarter of 2017. 

The Distribution segment operating income was $3.1 million in the third quarter of 2018, compared to $2.0 million in the third quarter of 2017.

Overall

The Company’s consolidated gross profit was $113.0 million for the third quarter of 2018, an increase from the third quarter of 2017 gross profit of $103.8 million. The gross profit increase was primarily due to higher sales.  The gross profit as a percent of net sales was 33.0 percent in the third quarter of 2018 compared to 33.4 percent in the third quarter of 2017.   

Selling, general, and administrative (SG&A) expenses were $72.5 million in the third quarter of 2018 compared to $70.9 million in the third quarter of the prior year.  The increase in SG&A expenses from acquired businesses was $2.9 million.  Excluding the acquired entities, the Company’s SG&A expenses in the third quarter of 2018 were $69.6 million, a decrease of about 2 percent from the third quarter 2017, due primarily to the effect of foreign currency translations in the third quarter of 2018 versus the prior year.

The Company ended the third quarter of 2018 with a cash balance of $41.2 million, which was $26.0 million lower than at the end of 2017.  Cash has decreased primarily due to acquisitions as well as working capital requirements partially offset by an increase in cash from earnings.

Commenting on the outlook for the remainder of 2018, Mr. Sengstack said:

“As we look to the end of 2018, there are two primary issues that we believe will result in our full year 2018 earnings per share to be below our current guidance of $2.27 to $2.37 before restructuring expenses:

  1. we will not recover the impact of the foreign exchange headwinds we experienced in the third quarter which we believe negatively impacted EPS by five cents, and;
  2. continued uncertainty in some international Water Systems end markets will likely continue. 

As a result, we are revising our 2018 full year EPS to now be between $2.22 and $2.26.”

A conference call to review earnings and other developments in the business will commence at 9:00 am EDT.  The third quarter 2018 earnings call will be available via a live webcast.  The webcast will be available in a listen only mode by going to:

https://edge.media-server.com/m6/p/2puhk3z3

If you intend to ask questions during the call, please dial in using 877.643.7158 for domestic calls and 914.495.8565 for international calls.  The conference ID is: 1096938.

A replay of the conference call will be available Friday, October 26, 2018 at 12:00 noon EDT through noon EDT on Friday, November 2, 2018, by dialing 855.859.2056 for domestic calls and 404.537.3406 for international calls.  The replay passcode is: 1096938.

Franklin Electric is a global leader in the production and marketing of systems and components for the movement of water and fuel. Recognized as a technical leader in its products and services, Franklin Electric serves customers around the world in residential, commercial, agricultural, industrial, municipal, and fueling applications.

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
        
(In thousands, except per share amounts)       
        
 Third Quarter Ended Nine Months Ended
 September 30, September 30, September 30, September 30,
 2018
 2017
 2018
 2017
        
Net sales$341,866  $311,113  $981,466  $836,714 
        
Cost of sales 228,900   207,271   653,442   554,303 
        
Gross profit 112,966   103,842   328,024   282,411 
        
Selling, general, and administrative expenses 72,483   70,850   223,723   196,077 
        
Restructuring expense 346   1,009   990   1,575 
        
Operating income 40,137   31,983   103,311   84,759 
   
Interest expense (2,443)  (2,297)  (7,477)  (8,055)
Other income/(expense), net (422)  438   (581)  6,616 
Foreign exchange income/(expense) (1,601)  193   (3,151)  296 
        
Income before income taxes 35,671   30,317   92,102   83,616 
        
Income tax expense 5,739   5,769   10,916   12,890 
        
Net income$29,932  $24,548  $81,186  $70,726 
        
Less:  Net (income)/loss attributable to noncontrolling interests 74   (78)  491   (617)
        
Net income attributable to Franklin Electric Co., Inc.$30,006  $24,470  $81,677  $70,109 
        
Income per share:       
Basic$0.64  $0.52  $1.74  $1.50 
Diluted$0.63  $0.52  $1.72  $1.48 
        

 

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
    
(In thousands)   
    
 September 30, December 31,
 2018 2017
ASSETS   
    
Cash and equivalents$41,173 $67,233
Receivables 193,429  171,007
Inventories 323,215  312,325
Other current assets 31,948  38,566
Total current assets 589,765  589,131
    
Property, plant, and equipment, net 206,157  215,694
Goodwill and other assets 396,229  380,528
Total assets$1,192,151 $1,185,353
    
    
LIABILITIES AND EQUITY   
    
Accounts payable$75,348 $79,348
Accrued expenses and other current liabilities 67,567  66,100
Current maturities of long-term debt and   
short-term borrowings 122,846  100,453
Total current liabilities 265,761  245,901
    
Long-term debt 94,229  125,596
Income taxes payable non-current 10,365  17,391
Deferred income taxes 29,601  30,913
Employee benefit plans 36,361  42,178
Other long-term liabilities 18,873  19,251
 
Redeemable noncontrolling interest 616  1,502
    
Total equity 736,345  702,621
Total liabilities and equity$1,192,151 $1,185,353
    

 

FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)   
 September 30, September 30,
 2018 2017
Cash flows from operating activities:   
Net income$81,186  $70,726 
Adjustments to reconcile net income to net   
cash flows from operating activities:   
Depreciation and amortization 28,987   28,418 
Share-based compensation 6,627   6,043 
Gain on equity investment -   (5,165)
Other (1,234)  (2,444)
Changes in assets and liabilities:   
Receivables (30,853)  8,449 
Inventory (15,571)  (35,758)
Accounts payable and accrued expenses (6,094)  (17,942)
Income taxes-U.S. Tax Cuts and Jobs Act (7,026)  - 
Other 4,396   (11,963)
    
Net cash flows from operating activities 60,418   40,364 
    
Cash flows from investing activities:   
Additions to property, plant, and equipment (15,108)  (22,517)
Proceeds from sale of property, plant, and equipment 432   207 
Acquisitions and investments (42,085)  (51,783)
Other investing activities 388   149 
    
Net cash flows from investing activities (56,373)  (73,944)
    
Cash flows from financing activities:   
Change in debt (8,203)  5,594 
Proceeds from issuance of common stock 8,747   3,770 
Purchases of common stock (12,080)  (3,263)
Dividends paid (16,960)  (15,245)
Purchase of redeemable non-controlling shares -   (5,047)
Net cash flows from financing activities (28,496)  (14,191)
    
Effect of exchange rate changes on cash (1,609)  3,569 
Net change in cash and equivalents (26,060)  (44,202)
Cash and equivalents at beginning of period 67,233   104,331 
Cash and equivalents at end of period$41,173  $60,129 
    

"Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including those relating to market conditions or the Company’s financial results, costs, expenses or expense reductions, profit margins, inventory levels, foreign currency translation rates, liquidity expectations, business goals and sales growth, involve risks and uncertainties, including but not limited to, risks and uncertainties with respect to general economic and currency conditions, various conditions specific to the Company’s business and industry, weather conditions, new housing starts, market demand, competitive factors, changes in distribution channels, supply constraints, effect of price increases,  raw material costs, technology factors, integration of acquisitions, litigation, government and regulatory actions, the Company’s accounting policies, future trends, and other risks which are detailed in the Company’s Securities and Exchange Commission filings, included in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2017, Exhibit 99.1 attached thereto and in Item 1A of Part II of the Company’s Quarterly Reports on Form 10-Q. These risks and uncertainties may cause actual results to differ materially from those indicated by the forward-looking statements. All forward-looking statements made herein are based on information currently available, and the Company assumes no obligation to update any forward-looking statements.

Contact:  John J. Haines
               Franklin Electric Co., Inc.
               260-824-2900

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Source: Franklin Electric Co., Inc.